# Model Fit Summary (R² and AR(1) Correction)

**Reviewer Issue 3.2**: Why do some models report negative R²?

| Dependent Variable | Sample | N | R² | AR(1) ρ | Flag |
|:---|:---|---:|---:|---:|:---|
| capital_intensity | Full | 4671 | 0.0872 | 0.865 |  |
| capital_intensity | OECD | 1301 | 0.2536 | 0.842 |  |
| capital_intensity | non-OECD | 3370 | 0.0876 | 0.866 |  |
| capital_output_ratio | Full | 4558 | 0.0351 | 0.948 |  |
| capital_output_ratio | OECD | 1153 | 0.1919 | 0.978 |  |
| capital_output_ratio | non-OECD | 3405 | 0.0082 | 0.946 |  |
| capital_per_worker | Full | 4509 | 0.4066 | 0.990 |  |
| capital_per_worker | OECD | 1153 | 0.3969 | 0.990 |  |
| capital_per_worker | non-OECD | 3356 | 0.2457 | 0.986 |  |
| labor_productivity | Full | 5074 | 0.4481 | 0.990 |  |
| labor_productivity | OECD | 1161 | 0.2793 | 0.990 |  |
| labor_productivity | non-OECD | 3913 | 0.3009 | 0.990 |  |
| gvc_proxy | Full | 4745 | -0.0955 | 0.987 | ⚠ |
| gvc_proxy | OECD | 1301 | -0.4179 | 0.990 | ⚠ |
| gvc_proxy | non-OECD | 3444 | 0.1651 | 0.980 |  |

## Interpretation

Negative R² values arise under GLS estimation when the model's fit, after
Prais-Winsten AR(1) correction and within-group demeaning, is worse than a
simple within-group mean. This occurs when:
1. The regressors explain little cross-sectional variation after absorbing
   country and year fixed effects;
2. The AR(1) transformation alters the effective dependent variable enough
   that a model fitting well in levels fits poorly in quasi-differences.

Negative R² does NOT indicate a coding error. The coefficient estimates and
standard errors remain valid — only the goodness-of-fit measure is
uninterpretable as variance explained. We report these values transparently
rather than censoring at zero.